Lyell Strambi: long-term vision for airport investors

Melbourne Airport executive Lyell Strambi has warned against tipping airports into the regulatory upheaval being experienced by industry sectors such as energy.

Strambi told the Australian Airports Association annual conference in Brisbane that long-term vision rather than short-term thinking was required to harvest the economic dividend from growth.

Melbourne is in the throes of a major runway expansion with a price tag of more than $1 billion and is one of several airports now needing additional runway capacity.

“Investment in airports is dominated by superannuation and pension funds representing the retirement savings of millions and millions of Australians,’’ Strambi said.

“We as investors play a long game when it comes to these sorts of investments but we expect some certainty for the people who manage the funds on our behalf.

“It really concerns me greatly to see some of the regulatory uncertainty and upheaval in some other segments at the moment. The change in the energy market at the moment, that constant change is just having a chilling effect on investment.

“Honestly, we as a nation can’t afford that kind of attitude to investment in airports. The cost would be huge to us.’’

Domestic and international passenger numbers have more than doubled in Australia since privatisation, from about 42 million in 1997 to almost 100 million in 2017-18.

More than 36.5 million passengers flew in and out of Melbourne last financial year with more than 10 million of them flying internationally in what Strambi described as a sustained trend.

Melbourne Airport currently employs more than 20,000 people but expects to grow to 35,000 over the next 20 years.

It now contributes $7 billion a year today but this is forecast to increase a whopping $20 billion by 2038 through advantages such as efficient access to export markets, the tourism sector and the education sector.

Its runway project will boost aircraft movements at Melbourne from around 55 to 100.

Strambi, who has run airlines as well as the airport, said it was his job to ensure the airport did not become a handbrake on Melbourne and Victoria.

But he said this could strain relations with airlines.

“Clearly with my background, I have enormous respect for the airlines,” he said. “Their businesses are enormously complex and their profits are so hard won.

“It’s very tough and we do need our airlines to be successful.

“But it is also true that a constraint on growth is not a bad thing for the bottom line of incumbent carriers at a particular port.”

“You only have to look at what’s going on the domestic market at the moment to actually see this live example, to see this effect of the so-called market capacity discipline that is really driving domestic profitability up.

“But we have to remember that comes at the cost of higher airfares and suppression of demand.”

He said the success of all airports was driven by passenger throughput – bums on seats rather than yield.

“It does really drive our behaviour because for us, keeping our costs low and keeping those volumes coming through is really important and that is great for the customer,’’ he said.

“So I would say that while airports can be technically described as monopolies, we certainly don’t behave like one.

“Our airports really have to compete hard for traffic and not just among the local airports but actually on a world scale.”

Strambi said one of the biggest challenges facing the aviation industry was the fact that critical assets were now reaching full utilisation.

They were also assets that could not be built incrementally and there was a short-term step change in the investment burden.

This meant airlines and airports needed to work together much better and find new ways of working if they were going to meet the burden efficiently and reach the long-term prize of taking the country forward.

He argued the regulatory system was not broken and most credible evidence suggested the light-handed framework had served the country well and would continue to do so.

Changes in regulation could occur relatively quickly but this was not the case for changes in embedded infrastructure.

“Real certainty in what the regulatory environment is going to look like is really helpful to smart investment because we invest for the long term,” he said.

By Steve Creedy

About Steve Creedy

An award-winning journalist, Steve began covering aviation in the United States in the early nineties before returning to Australia later that decade and editing The Australian’s aviation section for 17 years. He is editor of Airline Ratings and has co-authored books on industry initiatives aimed at reducing greenhouse emissions.

Steve has joined the AAA to write interesting and informative editorial on the aviation industry.